Energy suppliers face £1.9bn of debt

The research – conducted by Cornwall Insight and Complete Strategy – also highlights how the amount of unrecoverable debt facing suppliers is increasing with the cost-of-living crisis leaving more households unable to pay their bills.  

Without a recovery of these debts, domestic energy suppliers are increasingly facing the prospect of very challenging financial circumstances, particularly on the side of cashflow.  

Off the back of these, the report warns – without action on policy or regulation – a worst-case scenario increases the risk of more supplier failures, potentially resulting in increased cost to consumers and a further exacerbation of the cost of living.  

In July this year, eight major suppliers estimated they would incur £1.3bn worth of bad debt across 2022-23 – this is compared with the much lower levels of £585m and £522m figures quoted in 2020-21 and 2021-22. 

This, according to the report, is only likely to grow with the support provided by the Energy Price Guarantee changing from £2,500 to £3,000 in an average household. This increase will exacerbate the risk of supplier failures from April 2023.  

Cornwall Insight lead research analyst Dr Matthew Chadwick said: “The past two years have seen millions of households plunged into fuel poverty with many domestic consumers left unable to pay their energy bills, a situation which is set to get worse as government support is reduced.  

“The knock-on effect of unpaid bills has the chance to be harmful to suppliers, many of whom were already working with very tight profit margins. The sad truth is, as bad-debt increases, so does the chance of supplier failure.  

“The end cost of any exits will ultimately be borne by those paying the energy bills and without urgent action, suppliers and consumers could be left in a cycle of higher bills, increasing debt, supplier failure and ultimately even higher bills.  

“A solution is not easy, and government and industry need to do what they can to make sure the most vulnerable are suitably protected. At the same time, there needs to be a clear path for suppliers to recover the increasing levels of bad debt they are incurring.  

“In practice, this means that the costs of bad debt will either need to be carried by the suppliers or by customers who are in a position to pay. It is important that the industry finds a balance in which customer detriment is minimised, while reducing the overall risk to suppliers.” 

Complete Strategy principal Arthur Mitchell added: “We are in the middle of a period of extreme energy prices with customers and businesses struggling to meet their bills, and millions more households now in fuel poverty. 

“Ofgem will need to find ways to protect current customers without putting undue pressure on future customers or energy suppliers from the impact of this debt. This is a very tricky balance to get right but will be essential if customer bills are to come down quickly when wholesale prices drop.”